Bryce Williams
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The Residential Care Subsidy

If a person needs rest home or hospital care, and their assets are less than or equal to the applicable asset threshold[1], they may be eligible for a Residential Care Subsidy (RCS).  The RCS helps with the cost of care. It is paid directly to the hospital or rest home by the Ministry of Health.

The Ministry of Social Development (MSD) conducts a financial means assessment for assets and income to determine the amount of subsidy an applicant is entitled to.  The ‘means assessment’ is to ensure that, where appropriate, people use the resources available to them before getting a RCS. 


When determining if an applicant is eligible for the RCS, MSD considers whether the applicant (or their spouse or partner) has deprived themselves of assets or income. If deprivation has occurred, discretion can be exercised to count deprived assets and income back into the financial means assessment. 

You can find out more about how MSD (WINZ) uses discretion here:

Deprivation is generally when an applicant (or their spouse or partner) gives away more than the allowable limits or sells an asset for less than fair value. For example, if the applicant makes a gift outside the “gifting period” (five years prior to application) in excess of $27,000, the portion of the gift above that amount will be a deprived asset. MSD will treat that portion as if it were the applicant’s asset. 

MSD has developed a 3-step test to determine if deprivation has occurred and how much, if any, deprived amounts will be included. 
The 3 steps consider:

  1. Has deprivation occurred? 
  2. Should discretion be used to include the deprivation? 
  3. How should the deprivation be applied?

For more information see the WINZ website here:

An example

The case of Chief Executive of the Ministry of Social Development v Broadbent deals with income deprivation and family trusts.

Between 1990 and 2014 Mrs Broadbent sold her share of the family home and a holiday home to two family trusts for fair value, supported by a debt back.  Mrs Broadbent then progressively forgave the debts owed to her by the trusts.  In total Mrs Broadbent gifted $328,750 to the trusts, in annual increments of $27,000 or less. By 2016 the value of the trusts’ assets greatly exceeded the original sums gifted.

The Court of Appeal held that MSD was not entitled to gross up the value of the assets of the family trust, calculate a notional income from that value, and treat that as if it were Mrs Broadbent’s income.  Rather, MSD must adopt a calculation that recognises Mrs Broadbent’s notional income from the debt would have steadily reduced over time and then determine, in light of that, what a reasonable current income figure should be.

Updates by MSD after Broadbent case

MSD updated its operational policy following Broadbent, to calculate deprivation of income for an historic period where no interest rate is specified in the loan document.  MSD consider it may calculate a notional income charge using the Reserve Bank six-month term deposit rates and crystallise this amount into a deprived asset.

The policy also states where a transaction also provides benefits to an applicant, MSD may offset these benefits from the interest forgone (e.g. not charging interest on a loan to a family trust for the purchase of a property where the applicant has been living rent-free in the trust’s property), the value of any net interest that could have been charged can be offset by the value of the free rent.  Where property maintenance costs are paid in exchange for occupancy of the property, MSD would generally consider this a rental agreement, not free accommodation, and not offset these amounts.

Consideration for Family Trusts

The Court of Appeal also commented that in a family trust with a history of payment to an applicant, trust income is assumed to be available unless there are particular circumstances that demonstrate it is not.  MSD would therefore expect an applicant to request that the trustees of the trust support them in terms of their care costs.  If the trustees refused, MSD would likely treat that as deprivation of income.

Where a person has been living rent-free in a trust’s property but now requires care, and the trustees of the Trust decline to provide the equivalent monetary value of support, MSD may consider that the difference is deprivation. 

The Trusts Act 2019 has now come into effect.  Some people are deciding to wind up the trust due to the new obligations for trustees and increased compliance costs.  Before considering whether to wind up a family trust, it is advisable to consider how MSD may treat any loans that have been progressively forgiven, or future application of trust income, in terms of eligibility for the RCS.

Need assistance?

If you need advice about eligibility for the Residential Care Subsidy, or winding up a Family Trust, Gibson Sheat has specialists who can assist you. Give us a call (P: 0800 55 44 66) or send an email inquiry




[1] Currently $129,423 or less, if the value of the house and car are excluded (your house isn’t counted if it’s the main place where your spouse or partner lives) or $236,336 or less, if the value of your house and car is included.